Employee or contractor in Estonia? How to tell, and why it matters

How does Estonian law decide whether you are an employee?

Two presumptions favour employment. Work that, in the circumstances, would be expected only for pay is presumed to be done under an employment contract (TLS § 1(2)), and a contract is treated as concluded once someone starts such work, even without a signature (TLS § 4(2)). Members of a legal person’s management bodies, such as an OÜ’s management board, and heads of branches of foreign companies are outside the TLS (TLS § 1(5)).

The label is not decisive. Contracts are interpreted by the parties’ actual common intention, not by a wrong name (Law of Obligations Act (VÕS) § 29), and the Tax and Customs Board assesses arrangements by their real economic content.

Typical signs of employment: the company sets your hours and workplace, gives detailed instructions on how to work, requires you to work personally, slots you into a team and its reporting lines, pays a fixed monthly amount regardless of results and expects you to ask before taking time off. Typical signs of self-employment: you choose your methods, hours and location, deliver a defined result or service, may use helpers, carry business risk and work for several clients.

What is a käsundusleping, and how is it different from employment?

The client may give instructions, but where the work relies on your professional expertise they must not be too detailed about how you do it (VÕS § 621(1)). You are expected to perform personally but may use helpers (VÕS § 622). The fee is usually due after the service is performed or for agreed periods (VÕS § 628(1)), and the law gives the parties a broad right to cancel the contract (VÕS § 630), so check what the document says about notice and payment for work already done.

The TLS applies the käsundusleping rules to employment contracts wherever it has no rule of its own (TLS § 1(3)), which shows how close the two are. The dividing line is subordination: under a käsundusleping you organise your own work, while an employee is managed.

Check these clauses in your own contract – free summary →

What is a töövõtuleping, and when does it fit?

You are not presumed to have to do the work yourself (VÕS § 635(3)), and the fee generally falls due when the work is completed or accepted (VÕS § 637(3)–(4)). The result must match the contract (VÕS § 641(1)); if it does not, the client can ask for the defect to be remedied (VÕS § 646(1)). The client may cancel the contract at any time (VÕS § 655(1)).

English terminology causes confusion. Estonian authorities use “contract for services” for töövõtuleping and “authorisation agreement” for käsundusleping, while companies often call either one a “service agreement” or “contractor agreement”. Judge the document by what it requires, not by its title.

What happens if a contractor is really an employee?

Rights a genuine contractor does not have include the minimum wage (TLS § 29(6)), at least 28 calendar days of paid annual leave (TLS § 55), overtime compensation (TLS § 44), protection against termination without a legal ground and statutory notice (TLS § 85(5), § 97), redundancy pay (TLS § 100) and liability for negligent damage limited by the circumstances (TLS § 74(2)). A post-employment non-compete with an employee is valid only with monthly compensation (TLS § 24).

On tax, fees paid to an individual under a service contract are already taxed as income from employment: the company generally withholds income tax and pays social tax and unemployment insurance premiums, unless the person is a registered sole proprietor (FIE) receiving business income. What a service contract avoids is, among other things, the minimum monthly social tax obligation that applies to employees. The Tax and Customs Board warns against disguising employment as services billed between companies, for example through the worker’s own company, and the Supreme Court has confirmed that it may tax such arrangements by their actual content.

The worker carries risk too. A contractor is generally liable for any breach unless it is excused, for example by force majeure (VÕS § 103), and has no statutory right to paid holiday. Non-residents and people invoicing through a foreign company face different tax rules, so check with a tax adviser.

How should you read a “contractor agreement” from an Estonian company?

Clauses that point towards employment: fixed office or core hours; a set workplace; a duty to follow the staff handbook or a line manager’s instructions on how to work; a ban on substitutes or subcontractors; holiday “approval”; a fixed monthly fee not tied to deliverables; open-ended duration with no defined project; and exclusivity for one client.

Clauses that fit a genuine service contract: a defined scope or deliverables, acceptance criteria, your own tools and methods, freedom to work for others, invoicing against milestones, and liability and insurance terms suited to a business.

Then check the commercial terms: payment deadlines, intellectual property, liability caps, termination and any non-compete. If the document mixes both models, ask for either a proper employment contract or a revised service agreement, and have an Estonian lawyer review it if significant income or a residence permit depends on it.